Cautious optimism is in the air among cattle producers that calf prices will rise this year over dismal price levels experienced in 2012.
Although many producers were hoping for high calf prices last year due to lower numbers of cattle across North America, a drought across most of the U.S. caused corn and feed grain prices to jump.
According to a media release from Alberta's Agriculture Financial Services Corporation (AFSC), calf prices fell from a record $1.85 a pound in February of 2012 to $1.55 a pound in the fall, in part due to a drop in demand for calves as buyers grappled with high feed costs.
“The feedlots over the last year have been paying a lot of money for calves with expectations they're going to see even higher fed-cattle prices and they haven't,” said Brian Perillat, a manager and senior analyst with Canfax, a division of the Canadian Cattlemen's Association that analyzes markets and trends in the North American beef industry, adding people are buying fewer calves and, when they are, they aren't paying as much.
“The feedlots have been losing money so that also makes them a lot more cautious when buying calves.”
Perillat said calf prices are still “pretty disappointing” so far this spring and despite higher levels of moisture in the U.S. “corn belt” this year, there's still uncertainty about whether corn prices will drop.
“They (corn producers) are projecting near-record acres and a record crop but they haven't been able to get planting down in the U.S.,” he said, adding the high moisture levels are behind the delay in planting.
“It's too early to say with any certainty if it will affect the crop much but it may not bring prices down as much as expected.”
Should the cost of feed corn remain high, there's still a chance calf prices could improve as much as 20 cents a pound this year compared to 2012 thanks to higher grain production, he said.
“We should get some price relief compared to a year ago with more grain and better grain prices, which will support the calf prices.”
Cattle producers do have protection when selling calves through the provincial Cattle Price Insurance Program (CPIP), which is offered by AFSC and allows producers to insure up to 95 per cent of the future forecasted price of Alberta cattle.
The program currently kicks in when fall calf prices are $1.44 a pound and pays out in the range of $1.50 to $1.55, he said.
So, he added, producers are hoping prices will increase this year above the $1.44-a-pound mark.
Calf prices have hovered between $1.50 and $1.55 a pound this spring due to high feed costs, the AFSC states in its release.
Scott Severtson has an 800-hectare seed stock cattle operation near Innisfail.
Although he deals in seed stock as opposed to feeder stock, Severtson said the consequences of high feed prices are cascading through the entire cattle industry.
“It affects the whole market from one end to the other,” Severtson said, adding that when those selling calves receive lower prices for their animals in the fall, they won't pay as much for Severtson's bulls in the spring.
“So it's kind of a chain reaction.”
Last year, he said, his bull sales were down $800 a head compared to the year before.
It's the feedlots, however, that are taking the brunt of the high feed prices, Severtson added.
“If you're a feedlot and you're losing $100 an animal every time you sell one, you can't afford to do that very long because the feedlots run big, big numbers. You start feeding 100,000 head and losing $100 a head, that turns into millions of dollars in a big hurry, he said.
The problem in 2012 wasn't so much that calf prices ended up being so low, but rather that the cattle industry was extremely enthusiastic that demand for calves would be elevated because herd numbers have dropped in recent years across the continent— because of droughts and bovine spongiform encephalopathy, commonly known as mad cow disease—while beef consumption remained high, he said.
“If there's less cattle, chances are they're going to be worth more,” he said.
While last year's drought burst that bubble, Severtson said this year is “shaping up pretty good” for cattle prices.
“As long as there are not major droughts in the Midwest where the corn is grown, I suspect you'll see some of the feed grain prices soften somewhat. That should help the beef side of things,” he said.
While he has not subscribed to CPIP, Severtson said it's a beneficial program for feeder cattle producers.
This is the second year CPIP is offering calf price insurance and the deadline to participate is May 30.
For more information about the program, call the AFSC at 1-877-899-2372 or visit www.afsc.ca.
